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Discussion: Raiding the EF

in: barb; barb > 2016-10-17

Oct 25, 2016 5:19 PM # 
Raiding the EF doesn't address the structural budget problem of expenses exceeding income. It simply puts off the time that OUSA will run out of cash, and weakens the EF, the purpose of which is to provide recurring investment income to OUSA each year.

It is also is contrary to the spirit of the EF in general, and likely contrary to the wishes of those who bought life memberships, who most likely expected their contributions to be used as the EF has always been represented to members (for ongoing investment income, as opposed to short term funding of expenses).

If the purpose of the revenue from life memberships was for operational expenses, it would have been put in a different bucket, not an EF, which when traditionally managed, is in long term investments, not to be pulled from, when perhaps it is a bad time to sell the long term investments.

I hope that this is not the new board's thinking on solving the budget crisis, because it simply does not. You need to either reduce expenses, increase revenue, or both. This is just a short term shell game.
Oct 25, 2016 7:17 PM # 
Hi, Randy - the OUSA leadership generally agrees with your points. The financial accounting recently has at first glance included endowment contributions when these funds were never in practice available for expenses. OUSA has been deficit spending for the past several years, resulting in a decrease in unrestricted assets (i.e. spendable money in the bank) from $235k in Dec 2011 to $99k now. In contrast, the endowment has increased in size from $131k in 2011 to about $221k today.

We all recognize the need to adjust spending and income to balance our budget, and the finance committee is making a recommendation to the Board to build up our cash reserves over the next few years. At the same time, we don't want to be so austere that we don't pursue any meaningful programs and initiatives in the short term. Our questions about whether we can access the Board designated component of the endowment pertain to a short term patch on low cash reserves; I don't think there are plans to diminish the size of the endowment in the long term.

According to Barb's data, a total of $161k has been contributed to the endowment's principal directly (as of 2015). The earnings on the principal amount to $128k, of which $52k has been paid to the OUSA operating fund and the remaining $76k has been growth of the principal.

Finally, I'd note that while growing the endowment over the long term is fiscally prudent, we face some challenges now in the orienteering community that require action.
Oct 31, 2016 11:48 AM # 
Yes, I am not for raiding the EF. I was investigating for two reasons. First, I'm trying to learn about all the assets and financial policies of OUSA. As part of that, I became aware that the EF has both permanently and unrestricted (but board-designated) assets. However, there seems to be a disconnect with the EF organization (which is a separate organization with its own bylaws and board). They have no apparent means of distinguishing between the restricted and unrestricted assets, and my impression is that they would not honor a request to return the board-designated assets. While I don't support taking money back out of the EF at this time, the board may decide in the future to do so (hopefully with good reason), and we should make sure now that that mechanism exists. The lack of mechanism for this is an oversight; it's just not legal for a board to make a permanent designation of unrestricted assets.

A bad, but valid, reason to un-designate the board-designated EF funds would be if OUSA ran out of other money and needed to pay creditors or salaries. While I would hope that would never happen, and it would indicate either remarkably poor management or some unforeseen financial disaster, the fact remains that the board-designated money in the EF should be available for that situation.

Putting board-designated money into an EF is not unusual; many organizations do use their EF to also store board-designated funds for long-term investment. In our case, those funds are meant to pay for ongoing costs for those who have lifetime memberships. However, there are other things we might want to save up for over time, and the EF would be a reasonable way to do that. Except, we don't seem to have a clear mechanism for taking the money back out. That's important to fix.

The second reason that I wanted to learn about the mechanism of board-designated funds in the EF was that we are have been using up our other assets steadily over the past several years, and without making other changes, will soon need to go into our board-designated assets. Some of our board-designated assets are in the EF, and others are in team funds. So I think the board needs to realize this. While I have my own opinions about what we should change, that do not involve going into the board-designated assets, I don't get to decide on my own. The Board needs to understand fully both the financial situation as well as what options are available to it. Given our situation, I believe that laying out the financials fully and clearly should feel like a wake-up call.

The EF is composed of three parts: the permanently restricted principle, the board-designated funds, and the earnings on those amounts. The permanently restricted amount is not touchable, with the exception that the fund returns 4% of total assets to OUSA each year. (There is some complication due to the fact that there have been capital losses along the way, and accounting principles speak to the question of whether these permanently reduce the amount of permanently restricted funds; I haven't worked that out yet, but perhaps Robin has.) So in addition to the question of the mechanism for getting board-designated funds back if we ever needed to, there is also the question of how to do the accounting to determine what part of the assets are actually board-designated, given the changes in investment value as well as income over the years.

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